The Solicitors Regulation Authority has warned in-house solicitors that “attempts to mislead” debtors that external firms are taking steps against them could result in disciplinary action.

The warning came after universities minister David Willetts admitted yesterday that over a period of almost 10 years the Student Loans Company (SLC) had sent letters to graduates in arrears in the name Smith Lawson and Company, a trading name of SLC.

In the wake of Wonga’s fake law firms, high street banks have also been found to have sent out letters that appear to be from an independent law firm but are in fact from their in-house lawyers.

Richard Collins, SRA executive director, said: “There have been a number of complaints from members of the public that have arisen from in-house solicitors giving the impression that an external agency or firm has been instructed to take legal action, up to and including, court proceedings.

“We have reviewed a number of complaints and a range of letters sent by solicitors employed within financial and similar institutions to pursue debts.

“We believe attempts are being made to mislead third parties – invariably individual debtors – that their case has been referred to an independent law firm to pursue the debt, when in fact it is the in-house legal team. We believe such approaches do not meet the requirements of the Code of Conduct.”

The SRA has issued a warning notice, restating parts of chapter 8 of the Code of Conduct, which deal with publicity, and telling all solicitors “to act with integrity and maintain the trust the public places in them and in the provision of legal services”.

The warning notice states that the regulator “will consider the overall impact on the third party of information provided in the letterhead, the body of the correspondence and in the references made to regulatory status”.

The SRA said it would consider whether “the totality of the information provided” made the solicitor’s status clear.

Mr Collins went on: “Overall, the obligation on solicitors is to take positive steps to ensure third parties are clear about their status and relationship with the organisation seeking recovery of the debt. Failure to comply with this warning notice will lead to regulatory action.”

A spokesman added that sanctions available to the regulator ranged from warning letters to fines of up to £2,000. “Any misconduct that warrants greater punishment will be referred to the Solicitors Disciplinary Tribunal.”

In a written statement to Parliament, Mr Willetts said SLC had been sending out 309,000 letters under the Smith Lawson name since 2005, as a “low-cost alternative to referring [defaulting] graduates to third-party debt collection agencies”.

He revealed that in February 2014, the Office of Fair Trading contacted the Department of Business, Innovation and Skills and SLC “to express its concerns about the practice”, saying it considered the letters to be misleading because “they created the impression that debts had been escalated for collection by transfer to a third party”.

SLC, however, decided to amend the letters instead and continue using the trading name, but has now stopped the practice altogether in wake of the Wonga affair, he said. “Although the SLC did not break any rules or charge graduates for receiving these letters, it was clear that a public body should be holding itself to the highest standards in the treatment of its customers.”

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